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Copyright © 2014 Pearson Education, Inc.
Foundations*of*Finance,*8e,$Global$Edition,$(Keown/Martin/Petty)$
Chapter$14$$$Financial$Forecasting$and$Planning$
$
Learning(Objective(1(
(
1)(The(key(ingredient(in(a(firm8s(financial(planning(is(an(accurate(sales(forecast.(
Answer:((TRUE(
Diff:(1(
Keywords:((Financial(Planning,(Sales(Forecast(
AACSB:((Reflective(thinking(skills(
(
2)(Financial(forecasting(is(the(process(of(attempting(to(estimate(a(firm8s(future(financing(requirements.(
Answer:((TRUE(
Diff:(1( (
Keywords:((Financial(Forecasting,(Financing(Needs(
AACSB:((Reflective(thinking(skills(
(
3)(The(percent(of(sales(method(does(not(provide(a(reasonable(prediction(of(asset(levels(for(instances(when(
there(are(economies(of(scale(in(the(use(of(the(asset(being(forecast(and(when(asset(purchases(are(lumpy.(
Answer:((TRUE(
Diff:(1(
Keywords:((Percent(of(Sales(Method,(Economies(of(Scale,(Lumpy(Assets(
AACSB:((Reflective(thinking(skills(
(
4)(The(percent(of(sales(method(assumes(that(all(assets(and(all(liabilities(increase(proportionally(with(sales,(
but(retained(earnings(does(not.(
Answer:((FALSE(
Diff:(2(
Keywords:((Percent(of(Sales(Method(
AACSB:((Reflective(thinking(skills(
(
5)(A(corporation(that(increases(it(net(profit(margin(will(need(less(discretionary(financing,(other(things(
being(equal.(
Answer:((TRUE(
Diff:(1(
Keywords:((Net(Profit(Margin,(Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
6)(Discretionary(financing(needed(is(equal(to(the(predicted(change(in(total(assets(minus(the(change(in(
retained(earnings.(
Answer:((FALSE(
Diff:(1(
Keywords:((Discretionary(Financing(Needed(
AACSB:((Reflective(thinking(skills(
(
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Copyright © 2014 Pearson Education, Inc.
7)(For(a(typical(firm(expecting(higher(sales,(external(financing(needed(will(be(greater(than(discretionary(
financing(needed.(
Answer:((TRUE(
Diff:(2(
Keywords:((External(Financing(Needed,(Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
8)(Issuing(new(shortYterm(bonds(to(finance(an(expansion(is(an(example(of(spontaneous(financing.(
Answer:((FALSE(
Diff:(2(
Keywords:((Spontaneous(Financing(
AACSB:((Reflective(thinking(skills(
(
9)(If(the(sales(growth(rate(is(greater(than(zero,(then(the(discretionary(financing(needed(will(also(be(greater(
than(zero.(
Answer:((FALSE(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Sales(Growth(Rate(
AACSB:((Analytic(skills(
(
10)(Discretionary(financing(needed(must(be(obtained(through(additional(borrowing(because(additional(
equity(measured(by(the(increase(in(retained(earnings(has(already(been(deducted.(
Answer:((FALSE(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Debt,(Retained(Earnings(
AACSB:((Analytic(skills(
(
11)(The(first(step(in(a(corporation8s(financial(forecasting(process(is(the(determination(of(the(firm8s(
financing(needs.(
Answer:((FALSE(
Diff:(1(
Keywords:((Financial(Forecasting,(Financing(Needs(
AACSB:((Reflective(thinking(skills(
(
12)(In(the(percent(of(sales(method,(a(company8s(asset(requirements(are(based(on(the(company8s(projected(
sales(level.(
Answer:((TRUE(
Diff:(1(
Keywords:((Percent(of(Sales(Method,(Asset(Requirement(
AACSB:((Reflective(thinking(skills(
(
13)(Notes(payable(and(bonds(payable(are(spontaneous(liabilities.(
Answer:((FALSE(
Diff:(1(
Keywords:((Spontaneous(Liabilities(
AACSB:((Reflective(thinking(skills(
(
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Copyright © 2014 Pearson Education, Inc.
14)(In(order(to(reduce(discretionary(financing(needed,(a(profitable(company(could(decrease(its(dividend(
payout(ratio.(
Answer:((TRUE(
Diff:(1(
Keywords:((Discretionary(Financing(Needed,(Dividend(Payout(Ratio(
AACSB:((Analytic(skills(
(
15)(The(forecasted(retained(earnings(balance(is(equal(to((current(retained(earnings/current(sales)(times(
projected(sales(for(next(year.(
Answer:((FALSE(
Diff:(1(
Keywords:((Retained(Earnings,(Percent(of(Sales(Method(
AACSB:((Analytic(skills(
16)(Discretionary(financing(needed(is(equal(to(projected(total(assets(minus(projected(total(liabilities.(
Answer:((FALSE(
Diff:(1(
Keywords:((Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
17)(Discretionary(financing(needed(will(be(zero(when(the(company8s(sales(growth(rate(is(zero.(
Answer:((FALSE(
Diff:(1(
Keywords:((Discretionary(Financing(Needed,(Sales(Growth(Rate(
AACSB:((Analytic(skills(
(
18)(When(fixed(costs(are(part(of(a(firm8s(cost(structure,(the(percent(of(sales(method(will(understate(net(
income(and(overstate(discretionary(financing(needed,(if(sales(are(increasing.((
Answer:((TRUE(
Diff:(2(
Keywords:((Fixed(Costs,(Percent(of(Sales(Method(
AACSB:((Analytic(skills(
(
19)(Traditional(financial(forecasting(takes(the(sales(forecast(as(given(and(forecasts(the(corresponding(
expenses,(assets,(and(liabilities(of(the(firm.(
Answer:((TRUE(
Diff:(1(
Keywords:((Financial(Forecasting,(Sales(Forecast(
AACSB:((Reflective(thinking(skills(
(
20)(The(cash(budget(can(be(used(to(provide(an(estimate(of(the(firm8s(future(financing(needs.(
Answer:((TRUE(
Diff:(1(
Keywords:((Cash(Budget,(Financing(Needs(
AACSB:((Reflective(thinking(skills(
(
21)(Accounts(payable(and(accrued(expenses(are(known(as(discretionary(sources(of(financing.(
Answer:((FALSE(
Diff:(2(
Keywords:((Spontaneous(Liabilities,(Accounts(Payable,(Accrued(Expenses(
AACSB:((Reflective(thinking(skills(
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Copyright © 2014 Pearson Education, Inc.
(
22)(One(of(the(virtues(of(the(percentYofYsales(method(is(the(precision(of(the(estimate(of(future(financing(
needs.(
Answer:((FALSE(
Diff:(1(
Keywords:((Percent(of(Sales(Method(
AACSB:((Reflective(thinking(skills(
(
23)(Pro(forma(financial(statements(depict(the(end(result(of(the(planning(period8s(operations.(
Answer:((TRUE(
Diff:(1(
Keywords:((Pro(Forma(Financial(Statements(
AACSB:((Reflective(thinking(skills(
24)(Accrued(expenses(represent(a(spontaneous(form(of(financing.(
Answer:((TRUE(
Diff:(1(
Keywords:((Accrued(Expenses,(Spontaneous(Liabilities(
AACSB:((Reflective(thinking(skills(
(
25)(Discretionary(sources(of(financing(are(those(sources(that(vary(automatically(with(a(firm8s(level(of(
sales.(
Answer:((FALSE(
Diff:(1(
Keywords:((Discretionary(Sources(of(Financing(
AACSB:((Reflective(thinking(skills(
(
26)(A(set(of(estimates(which(corresponds(to(the(worst(and(best(case(outcomes(is(often(desired(in(
preparing(a(financial(forecast.(
Answer:((TRUE(
Diff:(1(
Keywords:((Sensitivity(Analysis,(Forecasting(
AACSB:((Reflective(thinking(skills(
(
27)(Forecasts(of(revenues(and(their(related(expenses(are(the(basis(on(which(firms(forecast(their(future(
financing(needs.(
Answer:((TRUE(
Diff:(1(
Keywords:((Financial(Forecasting(
AACSB:((Reflective(thinking(skills(
(
28)(It(is(often(the(case(that(the(planning(process(has(its(greatest(value(when(the(resulting(forecasts(have(
the(most(error,(because(the(planning(process(offers(its(greatest(value(when(the(future(is(the(most(
uncertain.(
Answer:((TRUE(
Diff:(2(
Keywords:((Planning(Process(
AACSB:((Reflective(thinking(skills(
(
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Copyright © 2014 Pearson Education, Inc.
29)(Purchasing(supplies(on(credit(and(paying(for(them(45(days(later(is(an(example(of(discretionary(
financing.((
Answer:((FALSE(
Diff:(1(
Keywords:((Discretionary(Financing(
AACSB:((Reflective(thinking(skills(
(
30)(Spontaneous(financing(is(financing(obtained(at(the(last(minute(due(to(poor(financial(planning.(
Answer:((FALSE(
Diff:(1(
Keywords:((Spontaneous(Financing(
AACSB:((Reflective(thinking(skills(
31)(When(preparing(pro(forma(financial(statement,(the(income(statement(must(be(prepared(first(because(
the(projected(retained(earnings(balance(on(the(balance(sheet(is(based(on(the(expected(net(income.(
Answer:((TRUE(
Diff:(2(
Keywords:((Pro(Forma(Financial(Statements,(Retained(Earnings(
AACSB:((Analytic(skills(
(
32)(Discretionary(financing(needed((DFN)(is(equal(to(projected(total(assets(minus(projected(total(liabilities(
minus(projected(owners8(equity.(
Answer:((TRUE(
Diff:(1(
Keywords:((Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
33)(Other(things(equal,(higher(net(profit(margins(mean(higher(discretionary(financing(needed.(
Answer:((FALSE(
Diff:(1(
Keywords:((Net(Profit(Margin,(Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
34)(Other(things(equal,(if(a(firm(increases(its(dividend(payout(ratio,(its(discretionary(financing(needed(
will(also(increase.(
Answer:((TRUE(
Diff:(1(
Keywords:((Dividend(Payout(Ratio,(Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
35)(Discretionary(financing(needed(can(be(positive(or(zero,(but(not(negative.(
Answer:((FALSE(
Diff:(2(
Keywords:((Discretionary(Financing(Needed(
AACSB:((Reflective(thinking(skills(
(
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36)(For(a(growing(firm,(external(financing(needed(will(most(likely(be(greater(than(discretionary(financing(
needed(due(to(increases(in(accounts(payable(and(accruals.((
Answer:((TRUE(
Diff:(2(
Keywords:((External(Financing(Needed,(Discretionary(Financing(Needed(
AACSB:((Analytic(skills(
(
37)(Using(the(percent(of(sales(method,(projected(common(stock(on(the(2010(pro(forma(balance(sheet(is(
equal(to((Common(Stock(2009/Sales(2009)(times(Projected(Sales(2010.(
Answer:((FALSE(
Diff:(2(
Keywords:((Percent(of(Sales(Method(
AACSB:((Analytic(skills(
38)(If(external(financing(needed(cannot(be(obtained(due(to(poor(market(conditions,(a(firm(could(reduce(
the(amount(needed(by(increasing(its(retention(ratio.(
Answer:((TRUE(
Diff:(2(
Keywords:((External(Financing(Needed,(Retention(Ratio((
AACSB:((Analytic(skills(
(
39)(The(percent(of(sales(method(can(be(used(to(forecast(
A)(expenses.(
B)(assets.(
C)(liabilities.(
D)(all(of(the(above.(
Answer:((D(
Diff:(1(
Keywords:((Percent(of(Sales(Method(
AACSB:((Reflective(thinking(skills(
(
40)(A(company(calculates(its(discretionary(financing(needed(and(determines(this(amount(of(capital(
cannot(be(raised(at(a(reasonable(cost.(Which(of(the(following(would(reduce(the(amount(of(discretionary(
financing(needed?(
A)(reduce(the(company8s(net(profit(margin(
B)(reduce(the(company8s(sales(growth(rate(
C)(increase(the(company8s(dividend(payout(ratio(
D)(increase(the(proportion(of(the(company8s(sales(that(are(made(on(credit(
Answer:((B(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Sales(Growth(Rate(
AACSB:((Analytic(skills(
(
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Copyright © 2014 Pearson Education, Inc.
41)(Ribbon(Industries(reported(sales(of($3(million(and(net(income(of($400,000(for(2010.(The(retained(
earnings(balance(at(the(end(of(2012(is($7(million.(Ribbon(Industries(has(a(dividend(payout(ratio(of(30%.(If(
sales(are(expected(to(increase(by(25%(next(year,(what(will(be(the(projected(balance(in(retained(earnings(
using(the(percent(of(sales(method?(
A)($7,280,000(
B)($6,720,000(
C)($7,350,000(
D)($8,750,000(
Answer:((A(
Diff:(2(
Keywords:((Retained(Earnings,(Percent(of(Sales(Method(
AACSB:((Analytic(skills(
(
42)(Discretionary(financing(accounts(include(all(of(the(following(EXCEPT(
A)(longYterm(debt.(
B)(notes(payable.(
C)(accrued(liabilities.(
D)(common(stock.(
Answer:((C(
Diff:(2(
Keywords:((Discretionary(Financing,(Accounts(Payable(
AACSB:((Reflective(thinking(skills(
43)(Using(the(percent(of(sales(method(and(assuming(that(no(excess(capacity(exists,(a(20%(increase(in(sales(
will(result(in(
A)(a(20%(increase(in(total(assets.(
B)(a(20%(increase(in(total(liabilities.(
C)(a(20%(increase(in(retained(earnings.(
D)(a(20%(increase(in(the(company8s(profit(margin.(
Answer:((A(
Diff:(2(
Keywords:((Percent(of(Sales(Method,(Full(Capacity(
AACSB:((Analytic(skills(
(
44)(The(CFO(of(Twine(Enterprises(expects(sales(to(increase(from($8,000,000(in(2010(to($12,000,000(in(2011.(
Current(assets(in(2010(are(equal(to($5,000,000.(Using(the(percent(of(sales(method,(projected(current(assets(
for(2011(are(equal(to(
A)($5,500,000.(
B)($7,083,333.(
C)($9,000,000.(
D)($7,500,000.(
Answer:((D(
Diff:(2(
Keywords:((Percent(of(Sales(Method,(Current(Assets(
AACSB:((Analytic(skills(
(
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Copyright © 2014 Pearson Education, Inc.
45)(All(of(the(following(will(increase(the(discretionary(financing(needed(EXCEPT(
A)(decrease(the(net(profit(margin.(
B)(decrease(the(dividend(payout(ratio.(
C)(decrease(the(sales(growth(rate.(
D)(decrease(the(spontaneous(financing.(
Answer:((B(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Dividend(Payout(Ratio(
AACSB:((Analytic(skills(
(
46)(DAS,(Inc.(is(preparing(its(financial(forecast(for(next(year(and(its(discretionary(financing(needed(is(
negative.(This(means(that(
A)(sales(growth(must(be(negative.(
B)(the(predicted(change(in(total(assets(must(be(negative.(
C)(the(predicted(change(in(spontaneous(liabilities(and(retained(earnings(must(be(greater(than(the(
predicted(change(in(total(assets.(
D)(the(dividend(payout(ratio(must(be(greater(than(the(predicted(growth(rate(in(sales.(
Answer:((C(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Spontaneous(Liabilities,(Retained(Earnings(
AACSB:((Reflective(thinking(skills(
47)(Potential(sources(of(financing(to(support(an(increase(in(sales(include(all(of(the(following(EXCEPT(
A)(increase(in(the(dividend(payout(ratio.(
B)(increase(in(spontaneous(liabilities.(
C)(increase(in(accounts(payable.(
D)(issuance(of(bonds(and/or(common(stock.(
Answer:((A(
Diff:(1(
Keywords:((Sources(of(Financing,(Spontaneous(Liabilities,(Retained(Earnings,(External(Financing(
AACSB:((Analytic(skills(
(
48)(When(forecasting(fixed(asset(requirements,(the(projected(fixed(asset(balance(will(
A)(not(increase(proportionally(with(sales(if(the(existing(level(of(fixed(assets(is(sufficient(to(support(current(
sales.(
B)(not(increase(proportionally(if(excess(capacity(exists.(
C)(remain(the(same(since(the(balance(is(fixed.(
D)(always(increase(proportionally(with(sales.(
Answer:((B(
Diff:(1(
Keywords:((Fixed(Assets,(Excess(Capacity,(Percentage(of(Sales(Method(
AACSB:((Analytic(skills(
(
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Copyright © 2014 Pearson Education, Inc.
49)(Using(the(percentage(of(sales(method(of(forecasting(
A)(all(asset(and(liability(accounts(increase(or(decrease(proportionally(with(sales.(
B)(only(asset(accounts(increase(or(decrease(proportionally(with(sales.(
C)(accounts(payable(and(accrued(expenses(are(the(only(liabilities(that(increase(or(decrease(proportionally(
with(sales.(
D)(all(balance(sheet(accounts(increase(or(decrease(proportionally(with(sales.(
Answer:((C(
Diff:(1(
Keywords:((Percentage(of(Sales(Method,(Spontaneous(Liabilities(
AACSB:((Reflective(thinking(skills(
(
50)(Which(of(the(following(will(most(likely(result(in(an(increase(in(discretionary(funding(needed?(
A)(The(company8s(profit(margin(increases.(
B)(The(company8s(dividend(payout(ratio(increases.(
C)(The(company8s(assets(are(only(operating(at(50%(of(capacity.(
D)(The(company(pays(its(accounts(payable(in(50(days,(up(from(45(days.(
Answer:((B(
Diff:(2(
Keywords:((Discretionary(Funding(Needed,(Spontaneous(Liabilities(
AACSB:((Analytic(skills(
51)(Fixed(assets(are(often(estimated(incorrectly(by(the(percent(of(sales(method(because(
A)(fixed(assets(remain(constant(and(the(percent(of(sales(method(assumes(all(assets(increase(proportionally(
with(sales.(
B)(fixed(asset(are(very(expensive.(
C)(fixed(assets(are(typically(purchased(in(elumpse(and(therefore(do(not(increase(proportionally(with(sales.(
D)(fixed(assets(are(part(of(the(capital(budgeting(process.(
Answer:((C(
Diff:(1(
Keywords:((Fixed(Assets,(Percent(of(Sales(Method(
AACSB:((Reflective(thinking(skills(
(
52)(Using(the(percentage(of(sales(method,(forecasted(retained(earnings(balance(is(equal(to(
A)(prior(year(retained(earnings(plus(projected(net(income(less(projected(dividends.(
B)(the(ratio(of(retained(earnings(to(sales(for(the(current(year(multiplied(by(projected(sales(for(next(year.(
C)(the(retained(earnings(balance(for(the(current(year(as(no(changes(are(made(to(this(financing(account(
when(using(the(percent(of(sales(method.(
D)(the(ratio(of(retained(earnings(to(sales(for(the(current(year(multiplied(by(projected(sales(for(next(year,(
minus(dividends(paid.(
Answer:((A(
Diff:(1(
Keywords:((Retained(Earnings,(Percent(of(Sales(Method(
AACSB:((Analytic(skills(
(
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Copyright © 2014 Pearson Education, Inc.
53)(Gerentology(Associates,(a(highly(profitable(company,(is(considering(two(growth(strategies,(one(that(
will(achieve(sales(growth(of(20%(in(one(year,(and(the(other(that(will(achieve(20%(growth(in(sales,(but(over(
a(4Yyear(time(frame.(Assuming(Gerentology(Associates(uses(the(percent(of(sales(method,(which(of(the(
following(statements(is(true?(
A)(Discretionary(financing(needed(will(be(much(greater(for(the(4Yyear(growth(strategy.(
B)(Discretionary(financing(needed(could(be(much(less(for(the(4Yyear(growth(strategy(due(to(retained(
earnings.(
C)(The(asset(balances(at(the(end(of(4(years(for(strategy(two(will(be(much(greater(than(the(asset(balances(
required(at(the(end(of(year(one(for(strategy(one.(
D)(Discretionary(financing(needed(could(be(much(greater(for(the(slow(growth(strategy(because(interest(
charges(will(accumulate(on(the(company8s(debt.(
Answer:((B(
Diff:(2(
Keywords:((Discretionary(Financing(Needed,(Retained(Earnings(
AACSB:((Reflective(thinking(skills(
(
54)(The(first(step(involved(in(predicting(financing(needs(is(
A)(project(the(firm8s(sales(revenues(and(expenses(over(the(planning(period.(
B)(estimating(the(levels(of(investment(in(current(and(fixed(assets(that(are(necessary(to(support(the(
projected(sales.(
C)(determining(the(firm8s(financing(needs(throughout(the(planning(period.(
D)(estimating(the(cost(of(debt.(
Answer:((A(
Diff:(2(
Keywords:((Financial(Forecasting(
AACSB:((Reflective(thinking(skills(
55)(A(sales(forecast(for(the(coming(year(would(reflect(
A)(any(past(trend(which(is(expected(to(continue.(
B)(the(influence(of(any(events(that(might(materially(affect(that(trend.(
C)(both(A(and(B.(
D)(neither(A(nor(B.(
Answer:((C(
Diff:(1(
Keywords:((Sales(Forecast(
AACSB:((Analytic(skills(
(
56)(The(epercentagee(used(in(the(percent(of(sales(calculation(can(come(
A)(from(the(most(recent(financial(statement(item(as(a(percent(of(current(sales.(
B)(from(an(average(computed(over(several(years.(
C)(from(an(analyst8s(judgment.(
D)(from(any(of(the(above(or(a(combination(of(the(above.(
Answer:((D(
Diff:(1(
Keywords:((Percent(of(Sales(Method(
AACSB:((Reflective(thinking(skills(
(
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57)(Spontaneous(sources(of(financing(include(
A)(accounts(payable(and(accrued(expenses.(
B)(notes(payable(and(mortgages(payable.(
C)(longYterm(debt(and(capital(leases.(
D)(common(stock(and(paidYin(capital.(
Answer:((A(
Diff:(2(
Keywords:((Spontaneous(Liabilities(
AACSB:((Reflective(thinking(skills(
(
58)(A(discretionary(form(of(financing(would(be(
A)(notes(payable.(
B)(accounts(payable.(
C)(accrued(expenses.(
D)(A(and(B.(
Answer:((A(
Diff:(2(
Keywords:((Discretionary(Financing(
AACSB:((Reflective(thinking(skills(
(
59)(Which(of(the(following(is(a(spontaneous(source(of(financing?(
A)(accrued(expenses(
B)(notes(payable(
C)(common(stock(
D)(paidYinYcapital(
Answer:((A(
Diff:(2(
Keywords:((Spontaneous(Liabilities(
AACSB:((Reflective(thinking(skills(
60)(All(of(the(following(are(useful(purposes(of(pro(forma(financial(statements(EXCEPT(
A)(they(provide(a(useful(tool(for(analyzing(the(effects(of(a(firm8s(forecasts(on(its(financial(performance.(
B)(they(satisfy(the(SEC(requirement(for(audited(financial(disclosure.(
C)(they(can(be(used(to(control,(or(monitor(a(firm8s(progress(for(a(planning(period.(
D)(they(serve(as(a(benchmark(to(compare(actual(results(to(planned(activities.(
Answer:((B(
Diff:(1(
Keywords:((Pro(Forma(Financial(Statements(
AACSB:((Reflective(thinking(skills(
(
61)(Which(of(the(following(statements(would(NOT(be(a(valid(use(of(pro(forma(financial(statements?(
A)(to(determine(a(firm8s(needs(for(financing(
B)(to(enhance(a(firm8s(ability(to(offer(shareholders(guaranteed(operating(results(
C)(to(analyze(the(effects(of(a(firm8s(forecasts(on(its(financial(performance(
D)(to(serve(as(a(benchmark(when(comparing(actual(results(to(planned(activities(
Answer:((B(
Diff:(1(
Keywords:((Pro(Forma(Financial(Statements(
AACSB:((Reflective(thinking(skills(
(
62)(Which(of(the(following(is(the(initial(and(most(important(step(in(the(preparation(of(pro(forma(financial(
statements?(
A)(Estimate(the(levels(of(investment(in(current(and(fixed(assets.(
B)(Determine(the(rate(of(interest(that(will(be(required(for(borrowed(funds.(
C)(Project(the(firm8s(sales(revenues(for(the(planning(period.(
D)(Approximate(the(cost(of(raw(materials.(
Answer:((C(
Diff:(1(
Keywords:((Pro(Forma(Financial(Statements,(Sales(Forecast(
AACSB:((Reflective(thinking(skills(
(
63)(The(epercent(of(sales(methode(is(a(method(of(preparing(pro(forma(financial(statements.(All(of(the(
following(would(be(examples(of(how(the(epercent(of(sales(methode(is(developed(EXCEPT?(
A)(Forecast(expenses(by(applying(a(percent(of(projected(sales,(using(last(year8s(expenses(as(a(percent(of(
last(year8s(sales.(
B)(Forecast(assets(by(applying(a(percent(of(projected(sales,(using(current(year8s(assets(as(a(percent(of(
current(year8s(sales.(
C)(Approximate(liabilities(by(applying(a(percent(of(projected(sales,(using(the(last(fiveYyear(average(of(
liabilities(as(a(percent(of(sales.(
D)(Forecast(retained(earnings(by(applying(a(percent(of(projected(sales,(using(current(year8s(retained(
